Scammers have been taking advantage of blockchain’s decentralized and immutable nature to swindle crypto investors since the advent of the technology.
And, according to the latest FBI fraud report, fraudsters are using fake crypto apps to steal money from unsuspecting crypto investors. It highlights that American investors have lost approximately $42.7 million to swindlers through fake apps.
The schemes reportedly take advantage of heightened interest in cryptocurrencies, especially during bull market runs, to beguile crypto users.
How fake crypto app scammers lure users
Fake crypto app scammers use myriad techniques to entice investors. The following is a breakdown of some of them.
Social engineering schemes
Some fake crypto app scammer networks use social engineering strategies to entice victims.
In many cases, the fraudsters befriend the victims through social platforms such as dating sites and then trick them into downloading apps that appear to be functional cryptocurrency trading apps.
The scammers then convince users to transfer funds to the app. The funds are, however, “locked in” once the transfer is made, and the victims are never allowed to withdraw money.
In some cases, the scammers lure victims using outlandish high-yield claims. The ruse comes to an end when the victims realize that they can’t redeem their funds.
Speaking to Cointelegraph earlier this week, Rick Holland, chief information security officer of Digital Shadows — a digital risk protection firm — underscored that social engineering remains a top strategy among crooks because it requires minimal effort.
“Relying upon the tried-and-true method of social engineering is far more practical and lucrative,” he said.
The cybersecurity manager added that social engineering makes it easy for scammers to target high-net-worth individuals.
Recognizable brand names
Some fake crypto app scammers have resorted to using recognizable brand names to push fake apps because of the trust and authority that they wield.
In one case highlighted in the latest FBI crypto crime report, cybercriminals posing as YiBit employees recently hoodwinked investors out of some $5.5 million after convincing them to download a bogus YiBit crypto trading app.
Unbeknown to the investors, the actual YiBit crypto exchange firm ceased operations in 2018. Fund transfers made to the fake app were stolen.
In another case outlined in the FBI report, phishers using the Supay brand name, which is associated with an Australian crypto company, swindled 28 investors out of millions of dollars. The ploy, which ran between Nov. 1 and Nov. 26, caused $3.7 million in losses.
Such schemes have been going on for years, but many incidences go unreported due to the lack of proper recourse channels, especially in jurisdictions that shun cryptocurrencies.
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Besides the U.S., investigations in other major jurisdictions such as India have in the recent past uncovered elaborate fake crypto app schemes.
According to a report published by the CloudSEK cybersecurity company in June, a newly discovered fake crypto app scheme involving numerous cloned apps and domains caused Indian investors to lose at least $128 million.
Distributing fake apps through official app stores
Fake crypto app scammers sometimes use official app stores to distribute dodgy applications.
Some of the apps are designed to collect user credentials that are then used to unlock crypto accounts on corresponding official platforms. Others claim to offer secure wallet solutions that can be used to store a diverse range of cryptocurrencies but pilfer funds once a deposit is made.
While platforms such as Google Play Store constantly review apps for integrity issues, it is still possible for some fake apps to slip through the cracks.
One of the latest methods used by scammers to accomplish this is registering as app developers on popular mobile app stores such as the Apple App Store and Google Play Store and then uploading legitimate-looking apps.
In 2021, a fake Trezor app masquerading as a wallet created by SatoshiLabs used this strategy to get published on both Apple App Store and Google Play Store. The app claimed to provide users with direct online access to their Trezor hardware wallets without needing to connect their Trezor dongle to a computer.
Victims who downloaded the fake Trezor app were obligated to submit their wallet seed phrase to start using the service. A seed phrase is a string of words that can be used to access a cryptocurrency wallet on the blockchain.
The submitted details allowed the thieves behind the fake app to loot user funds.
According to a statement provided by Apple, the fake Trezor app was published on its store through a deceptive bait-and-switch maneuver. The app developers are alleged to have initially submitted the app as a cryptography application designed to encrypt files but later on converted it to a cryptocurrency wallet app. Apple said that it was not aware of the change until users reported it.
Speaking to Cointelegraph earlier this week, Chris Kline, co-founder of Bitcoin IRA — a crypto retirement investment service — said that despite such incidents, major tech companies in the space were resolute in fighting fake crypto apps because of the potential damage to their integrity. He said:
“Tech companies are always looking for better education and security for their users. The most reputable players today put security at the forefront of their roadmaps. Users need reassurance that their digital assets are safe and providers are keeping security top of mind.”
That said, the fake app problem is more prevalent in non-official app stores.
How to spot a fake crypto app
Fake cryptocurrency apps are designed to resemble legitimate apps as closely as possible. As a crypto investor, one should be able to discern between legitimate and fake apps to avoid unnecessary losses.
The following is a breakdown of some of the things to look out for when trying to ascertain the authenticity of a mobile crypto application.
Spelling, icons and description
The first step in ascertaining whether an app is legit is checking out the spelling and icon. Fake apps usually have a name and icon that looks similar to the legitimate one, but something is usually off.
If the app or developer names are misspelled, for example, the software is most likely phony. A quick search about the app on the internet will help to confirm its legitimacy.
It is also important to consider if the app has a Google Editor’s choice badge. The badge is a distinction provided by the Google Play editorial team to recognize developers and apps with outstanding quality. Apps with this badge are unlikely to be fake.
Counterfeit apps usually request more permissions than necessary. This ensures that they glean as much data as possible from victims’ devices.
As such, users should be wary of apps that require off-center permissions, such as device administrator privileges. Such authorizations could give cybercriminals unfettered access to a device and allow them to intercept sensitive data that can be used to unlock financial accounts, including crypto wallets.
Intrusive app permissions can be blocked via a phone system’s privacy settings.
The number of downloads
The number of times that an app has been downloaded is usually an indicator of how popular it is. Apps from reputable developers typically have millions of downloads and thousands of positive reviews.
Inversely, apps with just a few thousand downloads require greater scrutiny.
Confirming authenticity by contacting support
If unsure about an application, contacting support through the company’s official website could help to avoid financial losses due to fraud.
Furthermore, authentic apps can be downloaded from a company’s official website.
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Cryptocurrencies are underpinned by relatively new technology, so it is only natural that there are teething problems when it comes to use and adoption. Unfortunately, in recent years, black hats have targeted naïve crypto enthusiasts using fake crypto apps.
While the problem is likely to persist for several years, increased scrutiny by tech companies is likely to temper the issue in the long run.